Saudi Aramco transfers 4% stake to Sanabil Investments

A 4% stake in oil major Saudi Aramco has been transferred from state ownership to Sanabil Investments, which is wholly owned by the Saudi Arabia's sovereign wealth fund, Crown Prince Mohammed Bin Salman said on Sunday.

The state remains Aramco's biggest shareholder, owning 90.18% of the Company.

Riyadh-based Sanabil is an investment company that commits approximately US$3 billion a year to private transactions, its website says.

The transfer will solidify PIF’s strong financial position and credit rating, the crown prince's statement. The Fund is responsible for the bulk of projects aimed at transforming the Saudi economy to reduce its reliance on oil revenue.

 

Saudi Aramco posts highest annual profit

Saudi Aramco announced on Sunday its full-year 2022 financial results, reporting a record net income of US$161.1 billion — its highest annual profits as a listed company. Aramco also declared a fourth quarter dividend of US$19.5 billion, to be paid in the first quarter of 2023.

Commenting on the results, Aramco President and CEO Amin H. Nasser said, “Aramco delivered record financial performance in 2022, as oil prices strengthened due to increased demand around the world.

“We also continued to focus on our long-term strategy, building both capacity and capability across the value chain with the aim of addressing energy security and sustainability.”

“Given that we anticipate oil and gas will remain essential for the foreseeable future, the risks of underinvestment in our industry are real — including contributing to higher energy prices.

“To leverage our unique advantages at scale and be part of the global solution, Aramco has embarked on the largest capital spending program in its history, and last year our capex rose by 18.0% to reach US$37.6 billion.”

“Our focus is not only on expanding oil, gas and chemicals production, but also investing in new lower-carbon technologies with potential to achieve additional emission reductions — in our own operations and for end users of our products,” he added.

Aramco’s net income grew to a record US$161.1 billion in 2022, from US$110.0 billion in 2021, an increase by 46.5%.

The increase in net income reflects stronger crude oil prices; higher volumes sold and improved margins for refined products. Q4 2022 net income is in line with analyst estimates, excluding certain non-cash items of around US$3.3 billion.

Free cash flow reached a record US$148.5 billion in 2022, as compared to US$107.5 billion in 2021. Aramco continues to emphasize a strong balance sheet and its gearing ratio at the end of 2022 was -7.9%, compared to 12.0% at the end of 2021.

Aramco declared a dividend of US$19.5 billion for the fourth quarter, to be paid in Q1 2023. This represents a 4.0% increase compared to the previous quarter, aligned with the company’s dividend policy aiming to deliver a sustainable and progressive dividend.

Additionally, the Board of Directors also recommended the distribution of bonus shares to eligible shareholders in the amount of one share for every 10 shares held, subject to required Extraordinary General Assembly and regulatory approvals.

Capital expenditure in 2022 was US$37.6 billion, an increase of 18.0% from 2021. Aramco expects 2023 capital expenditure to be approximately US$45.0 billion to US$55.0 billion including external investments, with capex increasing until around the middle of the decade.

Aramco also completed an energy infrastructure deal in February 2022 resulting in a consortium of investors, led by BlackRock Real Assets and Hassana Investment Company, acquiring a 49% stake in a newly formed subsidiary, Aramco Gas Pipelines Company (AGPC), for US$15.5 billion.

Shrinking global spare oil production capacity

Spare crude oil production capacity has shrunk significantly due to under-investment, the head of Saudi Aramco said, warning that the potential rebound in jet travel and continued power plant demand for liquid fuels could create a worryingly tight market in 2022. 

"Unfortunately, there is not enough investment in the sector to increase supplies and maintain that spare capacity," Aramco President and CEO Amin Nasser said at the Nikkei Global Management Forum.

He estimated that global oil demand would surpass pre-pandemic levels of some 100 million bpd next year. Jet fuel demand remains about 3 million-4 million bpd below where it was before the pandemic, and a recovery in air travel would quickly consume the world's spare production capacity, he said.

The current high oil prices reflect the healthy economic recovery, as well as energy switching in the power sector from gas to liquid fuels, which could potentially add 1.5 million bpd of oil demand this winter, Nasser said.

Spare capacity can act as the market's buffer against unexpected disruptions to supply, such as hurricanes, political unrest and security incidents.

With many international oil companies seeking to downsize their oil portfolios and some producing countries struggling to revive upstream investment, Saudi Aramco stands to benefit and gain in market share, as it embarks on raising its crude production capacity from 12 million bpd to a world-leading 13 million bpd by 2027. The company is already the world's largest exporter of crude.

The slower pace of the energy transition in many developing countries means oil will remain a major fuel source for several decades, Nasser said.

"Between now until 2050, there are going to be an estimated 2 billion more energy users in the world and population growth would be led by developing countries, where energy transition will be much slower," Nasser said. "Hence, I expect oil and gas demand will be healthy for many decades to come."

Nasser highlighted that there are different needs for less developed countries as consumers in developed countries may be able to afford expensive energy solutions, but the same would not apply for consumers in developing countries.

"The world needs green and clean energy policy that is more inclusive," he said.

Oil and gas would remain Saudi Aramco's key businesses for a long time, though efforts to reduce carbon footprint will be executed with its combination of strategies including carbon capture, gas to hydrogen, liquid to chemical and more, Nasser said. Saudi Aramco recently set a target of bringing its carbon emissions down to net zero from its operations by 2050.

"Aramco's upstream emissions are perhaps one of the lowest in the industry. ... We have done a lot and put in a lot of investments in reduction of GHG emissions and we are confident with our strategy," he said.

Is OPEC the other name of Saudi Arabia?

A meeting of Organization of Petroleum Exporting Countries (OPEC) is scheduled for 5th December 2019; the day Aramco is also due to announce the final offer price. The producers are expected to extend their supply pact at the meeting. It is anticipated that delegates may discuss deeper supply cuts amid forecasts of supply glut in 2020.

Analysts are pinning hopes on the meeting because oil prices slipped to US$63 a barrel after spiking to US$72 in the aftermath of 14th September 2019 attacks on Saudi oil facilities. The current price is below the levels many OPEC countries need to balance their budgets and below the levels officials say they favor.

OPEC, Russia and other allies, known as OPEC+, had agreed to reduce supply by 1.2 million bpd. OPEC’s share of the cut is about 800,000 bpd, to be shared by 11 members, except Iran, Libya and Venezuela.

United States the game spoiler

Voracious appetite for oil of United States has always been a strategic Achilles’ heel, with that vulnerability put on display to the world to during the 1973 Oil Crisis. A chronic hypersensitivity to oil supply crunches and price volatility helps US shape its foreign policy – it has been the driving force behind US partnership with the historic oil market maker Saudi Arabia. That is the reason the US Navy’s 5th Fleet patrols the critical choke points of the Gulf (the Strait of Hormuz), the Suez Canal and the Strait of Bab al Mandeb – the southern entrance to the Red Sea.

US has reached a record breaking 12.8 million barrels per day (bpd) of oil production in November in 2019 – a new high watermark for the industry. Earlier in September, US had achieved something yet more impressive when it exported more petroleum products than it imported. For the world’s leading oil buyer this is a big deal. America consumes over 20% of the global production of 99 million bpd of daily crude production, with China holding the number 2 spot at 13% and India in a distant 3rd at 5%.

Today the US leads the world in the production of petroleum products, including crude oil, petroleum liquids and biofuels with 17.9 million barrels per day, or 18% of the petroleum market. At present the US is ahead of Saudi Arabia, with 12.4 million bpd or 12% of the world's total output, and Russia producing 11.4 million bpd or 11% of the global market.

According to a Reuters report, oil output by OPEC fell in November mainly because Saudi Arabia kept a lid on supply to support the market before the initial public offering (IPO) of state owned Saudi Aramco. It was also supported by reduced production by Angola due to maintenance.

At an average, the 14-member OPEC pumped 29.57 million barrels per day (bpd) during November, down 110,000 bpd from October’s revised figure. Production from the two other exempt producers, Libya and Iran, was reported unchanged.

During November 2019, Saudi Arabia pumped 9.85 million bpd, down 50,000 bpd from October. Riyadh’s output had jumped by 850,000 bpd in October after the September attacks, but remained below its stipulated quota by OPEC. In November, the country pumped around 400,000 bpd less than the agreement allows.

OPEC’s largest production drop of 140,000 bpd was because Angola exported less crude in November due to maintenance. The African producer was already pumping far below its OPEC quota due to a natural decline in production and a lack of new fields coming online, rather than due to voluntary restraint.

The 11-OPEC members bound by the agreement, which for now runs until March 2020, have easily exceeded the pledged cuts. Compliance has been encouraging, although Iraq and Nigeria remain laggards among larger producers.

OPEC’s second-largest producer Iraq has pumped slightly less, but continues to overshoot its target.

Nigeria, which has consistently pumped more than its OPEC target, continued to do so in November, although output edged lower this month.

Among countries pumping more, the largest increase was in Kuwait, which increased output by 70,000 bpd to 2.72 million bpd, reaching its exact quota level.

Ecuador also pumped more after a decline in October, when protests against government austerity measures led to several fields being shut down.

Venezuela, which is contending with US sanctions imposed on state oil firm PDVSA and a long-term decline in output, managed a small boost to supply with exports increasing in November.